1. Assume that the rates in in the previous question were set the day before theBrexitvote, when most expected the referendum to fail. When the final vote came for "Leave", assume thatexpectations for the future$/ exchange rate plummeted to 1.6, as there was uncertainty about the British economy. Interest rates stayed constant (assume UIP was holding at the time). What do you expect to happen to the spot exchange rate today, given that UIP continues to hold (give the answer in % change of the exchange rate).
2. The current rates are:(1) Spot exchange rate: $2.00/;
 
3. (2) 90-day USD denominated bonds: 2% (8% annual);
4. (3) 90-day UK pound denominated bonds: 4% (16% annual);
5. (4) Current 90 day forward exchange rate: $1.98/

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To determine the expected percentage change in the spot exchange rate we can us... View the full answer